A Case of Inflation

“Galbraith Corrects Galbraith’s Errors,” announced a New York Times story about the publication of the second edition of The New Industrial State. But the event hasn’t precisely matched the advance publicity. As befits a critic of the auto industry’s annual style changes, Professor Galbraith has avoided wasteful retooling costs in preparing this “new, completely updated” edition. A few statistics are brought up to date; a once topical reference to President Johnson is deleted; a new Introduction by the author notes the impressive circulation of the first edition and (with an occasional concession) brushes off its detractors.

The book jacket announces, presumably for the benefit of the hard of hearing, that the first edition’s “phrases—the technostructure, the revised sequence, numerous others—are now part of the language.” Otherwise almost nothing is changed except the price—$8.95, up from $6.95 in 1967, a 29 percent increase during a period in which the Consumer Price Index was rising 22 percent—reminding us how inflation, in the words of an earlier Galbraith book, undermines “all the amenities which Western man has so laboriously built up and which permit him to describe himself as civilized.”

More immediately, the publication of this higher priced but virtually unaltered second edition during the Phase One ninety-day price freeze has raised one of those tricky technical questions that send weak-spirited men to their lawyers.

But it is not only the second edition that leaves the reader with a sense of déjà vu. As critics have pointed out, the basic theses of the book have been commonplace for decades. In the space of three chapters, Galbraith tells us that the modern corporation is run by its managers, not by its owners; thus spake Berle and Means, circa 1934. Another two chapters observe that advertising allows the corporation to dictate what consumers will buy. Thor-stein Veblen reported that news long before.

Later on we are taught, at some pains, that big corporations and big unions are no longer enemies; that defense contractors have supported the cold war; and that scientists and university professors cherish the aesthetic values that business ignores. For the most part, reading The New Industrial State is like searching through a hay stack and finding only hay.

But the major criticisms of the book have been less of its novelty than of its truth. As Galbraith foretold, the loudest complaints have come from economists. Galbraith, retracing Veblen, challenges the central notion of the economics profession: that a competitive capitalist system responds to “consumer sovereignty.” If you neglect the question of income distribution and assume there are no monopolies, then (with a few more assumptions) the economist can prove to you that a profit-driven system will take the society’s stock of resources and turn it into precisely that batch of goods and services that is most eagerly desired by consumers. The “invisible hand” of the price system directs land, labor, and capital into the lines of production that most fully satisfy consumers’ wants.

This theorem—known as the “optimality” of perfect competition—underlies…

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